This week, top central bankers from around the world are meeting in Sintra, Portugal to discuss the current state of the global economy. Unfortunately, the overwhelming consensus is that things aren’t looking good.
On Wednesday, Federal Reserve Chairman Jerome Powell is set to speak just a few days before the release of the next PCE inflation data on Friday. Meanwhile, European Central Bank President Christine Lagarde has reiterated the need to continue the battle with inflation, emphasizing that the ECB cannot afford to waiver.
Interestingly, the International Monetary Fund (IMF) has made quite a controversial contribution to the debate at the conference. Deputy Head Gita Gopinath highlighted the fact that raising interest rates too quickly in order to combat rising inflation could trigger financial instability, stating that it is an “uncomfortable truth.”
It’s a message that no one wants to hear; however, it’s one that needs to be taken seriously. Powell pressed ahead with interest-rate increases earlier this year when regional banks faced turmoil in March. Lagarde firmly declared that there is no trade-off between fighting inflation and financial stability earlier this year as well. Ironically, slightly higher interest rates almost pushed Greece out of the European currency bloc a decade ago.
Central bankers, who were once concerned about the negative impacts of interest-rate increases, are now swinging to the opposite end of the spectrum. They are focusing too little on the potentially damaging implications of low-interest rates.
Gopinath also pointed out that inflation is taking too long to slow back to target and that it will likely require some damage to the economy to get it there. Though it’s probably a sentiment with which many central bankers agree, it’s nevertheless important to note the brutal reality of these words.
Inflation Concerns Loom for Powell and Lagarde
The International Monetary Fund (IMF) has issued a warning that Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde may have to tolerate higher inflation rates for a prolonged period. The IMF’s statement is significant, as both central banks have stressed the need to curb inflation. Despite this, experts suggest that investors should embrace the possibility of inflation lingering longer than expected.
Lordstown Motors Files for Bankruptcy Following Foxconn Partnership
Electric-truck start-up Lordstown Motors has filed for bankruptcy after its partnership with Foxconn Technology, a major Apple supplier, fell apart. The news sent both stocks into a tailspin, with Hon Hai Precision Industry (Foxconn) closing down by 3.1% on Tuesday, and Lordstown plummeting during early pre-market trading.
Lordstown Files for Bankruptcy Protection and Litigates Against Foxconn for Fraud
Lordstown, an electric vehicle (EV) start-up, has announced that it is filing for Chapter 11 bankruptcy protection. The company has also filed litigation against Foxconn for fraud and breach of contract. This follows an agreement between the two companies, where Foxconn would purchase $170 million in shares of Lordstown. However, the agreement fell through, which Lordstown claims destroyed the business.
Lordstown had purchased an Ohio factory from General Motors and sold it to Foxconn as part of the deal. The idea was to gear up for production and cooperate on a series of new vehicles. Unfortunately, production never really got off the ground, and Lordstown’s market value has fallen significantly, plummeting from as much as $5 billion in 2021 to less than $50 million.
Foxconn had previously sent a letter to Lordstown saying that the company was in breach of an investment agreement. The reason cited was that Lordstown had received a notice from the Nasdaq Stock Market, stating that their shares didn’t meet the minimum $1 bid requirement to avoid delisting from the exchange.
Lordstown has stated that it will seek a buyer while Foxconn has remained silent about the issue.
Tougher Times Ahead for Small Vehicle Makers
The high-interest-rate environment, combined with the heavy costs involved in scaling EV start-ups, means that the future is only going to get tougher for small vehicle manufacturers. As the case with Lordstown and Foxconn shows, even well-funded companies with promising collaborations can fall short of expectations and struggle to stay afloat.
Weight-Loss Drug by Lilly Shows Promising Results
Eli Lilly reported promising results for its weight-loss drug at the annual science meeting of the American Diabetes Association. The drug called retatrutide has been administered through weekly injections, resulting in patients averaging a loss of more than 24% of their body weight after 11 months. This marks a significant advancement in the market for weight-loss drugs, which has seen limited successes in recent years.
Competition Heats Up in Obesity Drug Market
Major pharmaceutical companies are intensifying their efforts to take a slice of the obesity drug market. Eli Lilly’s reportedly promising trial results for its diabetes and weight loss shot, Mounjaro, have generated considerable hype in the industry, with weight loss exceeding the average achieved by the company’s other drug for Type 2 diabetes by 21%. Similarly, Pfizer has shifted focus to its twice-daily weight-loss pill, abandoning its once-daily pill, although it still plans to pursue the latter version. Novo Nordisk, which produces popular weekly injectable drugs Ozempic and Wegovy, is also developing a high-dose, once-daily pill for weight loss. Meanwhile, biotech firm Structure Therapeutics is testing a similar product. So far, only Novo’s Wegovy has been approved as a weight-loss drug. However, insurance coverage has been inconsistent. Next month, Novo will release results from a 17,600 patient study called Select that will reveal whether Wegovy-assisted weight loss helps avoid major cardiac events such as heart attacks and strokes. Analyst Seamus Fernandez expects the trial to demonstrate a reduction of over 10% in such cardiovascular occurrences.
Carnival’s Results Mixed Despite Travel Resurgence
Cruise line giant Carnival has reported positive second-quarter results, with revenue beating Wall Street predictions and travel on the rebound from pandemic-related restrictions. However, the company’s shares closed down 7.6% after the third-quarter outlook underperformed expectations.
Carnival’s Profits Soar Amidst High Demand for Travel
Carnival, the world’s largest cruise ship operator, has had a successful year with its stock rising 84% and quarterly revenue more than doubling from last year to $4.9 billion. The company’s CEO, Josh Weinstein, attributed this success to record-high bookings and customer deposits, and favorable pricing trends leading to increased demand.
AAA predicts that the upcoming July 4th holiday could break the pre-pandemic record for Independence Day travel with 50 million Americans traveling 50 or more miles from their homes. While most people are expected to travel by car or plane, 3 million are expected to travel by bus, cruise, or train for the holiday weekend.
Delta Air Lines is also thriving amidst high hopes for summer travel season, with its stock recently going on a 15-day winning streak.
In other news, President Biden recently announced over $40 billion in funding to expand high-speed internet access nationwide. This program is the largest investment ever made towards improving connectivity for Americans who lack broadband access.
Biden Administration Allocates $1 Billion for Broadband Access
The Biden administration is allocating $1 billion in funds to be distributed to states over the next two years to expand broadband internet access. The initiative is part of a larger effort to deliver reliable internet access to all Americans by 2030.
The lack of high-speed internet access affects around 8.5 million Americans, according to the Federal Communications Commission. Texas will receive the most funding, with $3.3 billion allocated to connect approximately 780,000 households and businesses that lack broadband service. Other rural states, such as Alaska, Montana, and West Virginia, as well as populous states like California, will also receive significant amounts of funding.
With projects set for completion as soon as mid-2024, the Biden administration is seeking to improve the country’s infrastructure in the long term as part of the 2021 infrastructure law. President Biden is scheduled to deliver a speech in Chicago on Wednesday highlighting his administration’s economic achievements as part of a three-week tour promoting infrastructure investments.
Join this month’s virtual stock exchange challenge and show us what you’ve got!
Trade Challenge: Compete for the top portfolio
Ready to take on a trading challenge? We’re excited to announce our upcoming competition where everyone starts with the same amount and can trade as often or as little as they choose. At the end of the challenge, the winner with the portfolio that has the most value will be announced in our highly-coveted Daily newsletter.
Join the challenge and test your trading skills. Pick your stocks here and start competing for the top portfolio. Good luck!